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Analysts see clear sailing for gamer

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Shareholders of Activision Inc. had a good week. Their stock rose from $18.40 to $18.70, representing a 1.6% rise in five trading days.

Activision benefited from a good showing at the E3 Media & Business Summit last week and from a positive note from analyst Edward Williams at BMO Capital Markets.

Williams, who only rates the stock "market perform," nevertheless raised his revenue and earnings-per-share estimates for the next fiscal year. The former went to $1.875 billion from $1.84 billion previously, while the latter increased to 58 cents from 55 cents previously.

The analyst likes that Activision's four biggest games in the June quarter -- "Spider-Man 3," "Shrek the Third," "Transformers" and "Guitar Hero II" -- surpassed 8 million units sold.

"Spider-Man 3," at 4 million units, is selling best, followed by "Shrek the Third" at 2 million and 1 million apiece for the other two.

Williams is also enthusiastic about Christmastime releases from Activision that will include "Call of Duty: Modern Warfare," "Tony Hawk's Proving Ground," "Guitar Hero III" and "Bee Movie."

Plus, he predicts "Spider-Man 3" and "Transformers" will continue to sell well "through the next several quarters" as the DVDs are released.

He adds that he expects the company "to post strong operating margin expansion in the current year and beyond, with efforts to wring costs out of game development, improve marketing efforts and leverage existing properties in international territories."

The primary negative highlights in his note, though, is that much of his positive expectation is "reflected in the share price of the stock."

Williams has a $21 target on Activision.

Analyst Colin Sebastian of Lazard Capital Markets also weighed in after meeting with company executives at E3. The execs, he said, provided an "upbeat growth outlook, including opportunities for significant margin expansion."

It should also be noted that Sony recently cut the price of its PlayStation 3 by $100, which no doubt will move more units and boost sales of games for that platform. Observers are hopeful Microsoft will follow suit with its Xbox 360.

Sebastian wrote in a note from E3 after meeting with Microsoft that, "Although there was no mention of pricing strategy in the presentation, we continue to believe a hardware price cut of $50 is likely on the Xbox 360 before the end of the summer."